Currency news

Dovish Bailey puts pressure on GBP

Thanim Islam
Profile
Head of FX Analysis at Equals Money
-
3
min read
Publish date
18/04/24
  • Yesterday's higher CPI number a blip?
  • USD weakens on talk of currency intervention


Recap

Despite UK CPI numbers yesterday morning coming in higher than expected, and markets pushing back rate cut expectations to September, GBP gains did not follow which is what you would normally expect. Governor Bailey added to GBP woes with some dovish comments, suggesting that the job market is loosening as well as expecting a large drop in inflation next month. He also attempted to differentiate the UK from the US by stating that the UK faces less inflation risk than the US. USD weakened for the first time in six days also as treasury yields declined, and amidst talk of currency intervention in Japan and Korea. The EUR drew support, as ECB president stated that the Bank is watching FX moves very closely.

Today

Market rates

*Daily move - against G10 rates at 7:30am, 18.04.24

** Indicative rates - interbank rates at 7:30am, 18.04.24

Table - 2024-04-18T083405.274

Data points

Table - 2024-04-18T083408.424

Speeches

  • EUR: ECB Guindos, Nagel, Centeno, Simkus, Vujcic
  • USD: Fed Bowman, Williams, Bostic
  • GBP: BoE Greene

Our thoughts

Listening to Governor Bailey's dovish comments yesterday, it seems yesterday’s CPI number could be a blip in the down-trending inflation numbers for the UK. Whilst market pricing for rate cuts is in line with the Fed for now, there is room for further GBP weakness should markets start pricing in an earlier rate cut by the BoE.

With central bankers talking FX (Japan, Korea, EU), there is room for some consolidation for USD, and thus purely on markets repositioning we could see some USD weakness in the short term. But worth noting that the fundamental picture remains unchanged and, in a market where the Fed seems to be the most reluctant to cut rates anytime soon, USD seem likely to benefit in the longer term.

Today’s focus will fall on a host of central bank speakers from the ECB, BoE and Fed.

Chart of the day

With Governor Bailey differentiating the inflationary pressures between the UK and US, there could well be downside risk on GBP should market pricing on interest rates start reflecting an earlier rate cut by the BoE. GBPUSD recently fell through a key support level, and although there has been some USD weakness of late, we see that prior support level acting as a level of resistance, and should this play out then we could well see GBPUSD hit the lows seen in October/November 23.

18042024 cotd
Source: Bloomberg Finance L.P.

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About the author
Thanim Islam
Profile
Head of FX Analysis at Equals Money

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